Stocks Fall After Immediate Stimulus Hopes Fade, World Markets Cautious

Bikram Pandey
11 Jul, 2012
New York City

U.S. indexes accelerated the decline after the prospect of another stimulus faded. The latest minutes of Fed meeting showed that more action may be needed to lower unemployment rate but also noted most of the jobless rate is driven by structural factors.

[R]4:00 p.m. New York – U.S. indexes accelerated the decline after the prospect of another stimulus faded. The latest minutes of Fed meeting showed that more action may be needed to lower unemployment rate but also noted most of the jobless rate is driven by structural factors.[/R]

U.S. indexes reversed slight gains after the release of minutes of the latest Fed meeting.

The minutes of the June 19-20 meeting showed that at least few committee members expressed the view that additional policy stimulus “likely would be necessary” to promote satisfactory growth in employment and to keep inflation within the Fed’s target.

However, the weaker than expected private sector hiring, restrained government spending and a fall in oil price that is expected to help consumer spending played in the rate setting committee’s decision.

The Fed plans to continue its plan to purchase $44 billion of U.S. Treasury securities with maturities between 6 years and 30 years while selling equal amount of securities of approximately 3 years or less maturity.

Though the Fed officials did not expand the bond buying program but were more assertive in the Fed’s preparedness to do so in the future.

Fed officials also worried that the unemployment rate was higher than the committee’s goal but also felt that the current rate was driven by structural factors. Fed members also discussed in how the committee can communicate with the public and explored more “quantitative economic projects” but also acknowledged that could be “challenging.”

In other economic news, the U.S. trade deficit narrowed in May, according to data released by the U.S. Commerce Department today. Exports increased 0.2% and imports declined 0.7% in the month from April.

In the month of May exports edged up $183.1 billion and imports declined to $231.8 billion in May resulting in a goods and services deficit of $48.7 billion, down from the revised $50.6 billion deficit in April.

Deficit with China widened to $26 billion from $24.6 billion a month ago and average price of imported crude oil declined to $107.91 a barrel helping the deficit to fall. The deficit with the European Union rose to a high since July 2008 to $10.5 billion.

In corporate news, Adtran second quarter net declined 43%. Regional electronics retailer, Hhgregg plunged 35% after it lowered its quarterly and annual net outlook. Tech Data agreed to buy Brightstar Corp. for $165.6 million. Unit Corp acquires certain assets of Noble Energy for $617.1 million.

The European indexes traded mixed and Spain announced new €65 billion in austerity measures and Germany raised €4.15 billion from debt sale at record low yields.

On the corporate front, Gerresheimer, the specialty products maker soared 5.1% after quarterly net rose and Fraport AG said June passenger traffic increased 5.4%. TUI Travel Plc signed a five-year maintenance agreement with Boeing for 787 Dreamliner.

French current account deficit narrowed and Spanish leading indicator index fell in May. Inflation in Germany eased but in Hungary rose in June and the Czech unemployment rate dropped in June.

The UK indexes fell after economy remained flat in the June quarter. Burberry plunged despite a rise in quarterly revenues. Rolls-Royce won $280 million worth order from Avianca and Shell acquired remaining outstanding shares in Gasnor for $74 million.

Stocks in Tokyo extended losses for the fifth day and the yen traded at 97 against euro and 79.21 against a dollar as the currency continued its advance for the last five weeks. Electronic chip equipment makers dropped after sales warning from Applied Materials.

Australian stocks closed lower for the fifth day and investors awaited more economic data from China. Stocks in resource sector declined for the third day in a row and Telstra extended annual gain to 12% and traded at 40-month high.

Commodities, Bonds and Currencies

The yield on 10-year bond was decreased to 1.49% and on 30-year bond fell to 2.59%.

The U.S. dollar inched higher to $1.215 to a euro and increased against the Japanese yen to 79.67 yen.

Immediate delivery futures of Texas crude oil increased $2.08 to $85.95 a barrel and Brent crude added $2.36 to $100.32, futures of natural gas gained 0.11 cents to $2.85 per mbtu and gasoline price increased 2.52 cents to 277.20 cents a gallon.

In metals trading, copper increased 2.5 cents to $3.43 per pound, gold decreased $7.00 to $1,572.80 per ounce and silver increased 11 cents to $27.